Bigger cities are richer, breeding greater inequality

17 November 2016

New research of 101 Australian cities and towns

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New research confirms as Australian cities get bigger they also get richer, as a disproportionate amount of the wealth goes to top income earners, which is breeding greater inequality within and between cities.

Source: University of Sydney, based on 2011 Census data.

Dr Somwrita Sarkar from the University’s Sydney Urban Lab and lead author of the research said: “Our research suggests that bigger cities are serving the rich more, and making them less affordable for all. This could end up driving lower income earners out of the big cities or to the fringes, and creates greater inequality in Australian society.”

Based on the data of the 2011 Census, Dr Sarkar examined scaling laws that relate incomes to city sizes to establish how the size of Australian cities and towns might influence people’s income distribution.

“The research shows the detrimental outcomes of economic agglomeration. Larger cities drive economic growth through agglomeration, but this also causes more economic inequality,” said Dr Sarkar.

The research analysed the distribution of people and their incomes in ten Australian Bureau of Statistics (ABS) income categories from $1-$10,399 up to $104,000+, and how they scaled against population size – comparing 101 Australian cities and towns with populations exceeding 10,000 and up to 4 million people.

The findings showed that the larger the population size and density of a city, higher incomes grew more quickly than lower incomes, suggesting a disproportionate accumulation of the highest earners in the biggest cities. The only exception to this finding was the smaller towns specialising in a specific economic activity such as mining and wine production.

“If you are poor, you are as likely or slightly less likely to be found in a big city as in a small city. Your living costs in a bigger city would be higher and affordability of services lower, making you relatively less well-off.

“Whereas, higher income earners are much more likely to be found in a big city and have the advantage of being able to afford the best services and infrastructure offered by big cities.

“This creates a problem whereby lower income earners living in the big cities are spending more income on housing and travel, whereas the wealthier spend much less income for the same goods and services. This intensifies the gap between the rich and poor in our cities and between cities,” said Dr Sarkar.

The research is particularly significant for a country that has 60 per cent of its population living in the five biggest and richest capital cities - Sydney, Melbourne, Perth, Adelaide and Brisbane.

According to ABS Household income data, the wealthiest 20 per cent of households also account for 61 per cent of total household wealth, with an average net worth of $2.2 million per household each year. Whereas the poorest 20 per cent of households account for just one per cent of total household wealth, with an average net worth $31,205 per household a year.

The stark gap in wealth shows the disparity in income across the population, with a relatively small number of people on the highest incomes, and a greater number of people earning less. The research affirms that the gap gets greater as the size of towns and cities get bigger.

Source: University of Sydney, based on 2011 Census data.

“This is why we find higher living costs and high prices for housing and transport in the largest cities. This is partly fuelled by the incomes of the highest earners, which forces more people to pay more than they can afford or simply drives them out of the city.

“As the world today sees more people living in urban areas, we need to understand how urban development impacts not just economic growth but overall well-being and quality of life for all. To create cities where the best is accessible and affordable to only a few is not only unjust, but raises serious questions about the resilience and stability of our cities in a rapidly urbanising world,” added Dr Sarkar.